The concept of short supply chains in the food economy

Assoc. Prof. Sebastian Jarzębowski (IAFE-NIR)Dipl.-Ing. Katja Pietrzyck (University of Bonn)

05-07.12.2017

Short Supply Chain

Summary and Conclusions

Short Supply Chain - Benefits

Short Supply Chain -Development possibilities

Introduction

Short Supply Chain – Key Concepts

Agri-food economy and food chains are transformed from a commodity system organized via spot markets towards a vertically coordinated food system.

This leads to competition between supply chains and networks, and not only to competition between individual companies.

Food products can easily get worse due to the carelessness of one of the participants in the chain.

Consumers put greater demands on issues such as food safety, packaging design, product diversity, quality of products and services.

The issue of environmental impact and its protection is becoming more and more important (the relationship between supply chains and sustainable development).

Introduction

Short Supply Chain

Summary and Conclusions

Short Supply Chain - Benefits

Short Supply Chain -Development possibilities

Introduction

Short Supply Chain – Key Concepts

Short Supply Chain

A supply chain consists of two or more legally separated organizations, being linked by material, information and financial

flows. These organizations may be firms producing parts, components and end products, logistic service providers and even

the (ultimate) customer himself. [Stadtler and Kilger 2008].

Source: Douglas M. Lambert, Editor, Supply Chain Management: Processes, Partnerships, Performance, Third Edition, Sarasota, FL: Supply Chain Management Institute, 2008, p. 4.

Short Supply Chain

o The supply chain can be described by indicating itscharacteristics such as:

o Supply chain structure,o Type of material flow,o Objectives, functional areas and areas of interaction of

participating entities,o Contribution to the creation of added value (distribution of

margins),o Interventionism (market disruption),o Regulations, standards and rules, product specific safety and

quality requirements (quality shows a direct relationship withthe price).

Short Supply Chain

o The supply chain can be described by indicating itscharacteristics such as:

o Supply chain structure,o Type of material flow,o Objectives, functional areas and areas of interaction of

participating entities,o Contribution to the creation of added value (distribution of

margins),o Interventionism (market disruption),o Regulations, standards and rules, product specific safety

and quality requirements (quality shows a direct relationshipwith the price).

Short Supply Chain

Figure: Participation in creating value-added from food production to distribution

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1969 1975 1981 1987 1993 1999

Rolnictwo Przetwórstwo Handel Usługi

Source: Own study based on [Ondersteijn et al. 2006].

Short Supply Chain

o In the market mechanism, the added value isdistributed in such a way that the ones who areclosest to the consumer benefit the most. The marketredistributes value added, depreciating agriculture[Czyżewski et al. 2006].

o The state should enter into the sphere of inter-branchflows in order to retransfer the value added producedbut not realized by farmers [Kowalski and Rembisz2005].

o The mechanism counteracting this depreciation mayalso be a shortening of the supply chain by eliminatingintermediaries.

Short Supply Chain

Short supply chain means a supply chain involving a limited number of economic operators, committed to

co-operation, local economic development, and close geographical and social relations between

producers, processors and consumers

Short supply chains incorporate dimensions of proximity as:• Geographical proximity• Social proximity• Economic proximity

Short Supply Chain

CHAIN

EXCHANGE

NETWORK

PROXIMITY

LAND USE

NATURE

Short Supply Chains are characterized by maximum of one intermediarybetween producer and consumer

Research granted by European Commission within Horizon 2020 Programme as a project no 728055 „Short supply chain Knowledge and Innovation Network - SKIN”

Short Supply Chain –Key Concepts

CHAIN• Direct selling via farmers’

shops• Farmers’ markets• Public procurement• Contract production for

processors, retailers, restaurants and food service providers

EXCHANGE• Economy of sharing

among farmers and cooperatives

• Fostering the aggregationof good practices and initiatives in the SFSC sector

NETWORK• Overcoming knowledge

fragmentation• Supporting bottom-up

innovation initiatives• Identifying specific

aspects, experiences and shortcomings in SFSCs management aimed at generating demand driven innovations

Short Supply Chain –Key Concepts

LAND USE AND NATURE• Making a better use of our

land• Positive impact on the

environment and on many other related aspects including human health and wellbeing, economic and food supply resilience

PROXIMITY• rebuilding of trustful relationships and

common values between society and producers.

Short Supply Chain -Benefits

Benefits

Improvedproduct range

Resource sharing

Local food chain

infrastractureIncreased

negotiatingpower

Reducedcompetition

(small producers)

Mutual support

Highermargins /

loweroverheads

Short Supply Chain

Success factors BarriersOn-line sales: reliable internet network, effective online store, ordering system and payment system, use of social media, reliable distribution.

Poor Internet network, weak IT systems, lack of affordable technical support, lack of knowledge on how to use social media, unreliable distribution.

Sales in the local community: key products that attract consumers, good interpersonal and communication skills required in dealing with consumers, variety of sales points and sales channels to increase access and convenience of shopping

Farmers may lack communication skills in sales. The costs of stalls and cooling systems on the market, the cost of owning or renting store space.

Public procurement: Application of social and environmental criteria in tenders for public procurement. Public authorities ask for potential suppliers before the offer is prepared. The division of orders into smaller parts increases the chance of local producers to obtain a contract.

A general lack of awareness of the flexibility and possibilities under the EU public procurement rules on the part of public authorities and potential suppliers. Farmers often do not have the skills and resources to submit an offer and meet the requirements (eg continuity of supply, consistency in quality).

Supermarkets: Cooperation centers gathering many small suppliers. Strong and distinctive products in the niche of premium products.

Small producers lack bargaining power to challenge supermarkets in trade negotiations. Supermarkets may require exclusive supplies, which increases the risk of suppliers and limits sales to other customers.

HoReCa: Specjalne wydarzenia promujące typu „spotkaj się z producentem”.

Poor organization on the part of farmers compared to the professionalism expected by hotels.

Table: Factors of success and barriers in terms of access to markets and consumers

Short Supply Chain

Figure: Short Supply Chains by SECTORS

Short Supply Chain

Figure: Short Supply Chains by RELEVANT INNOVATION CHALLENGE

Short Supply Chain

Figure: Short Supply Chains by RELEVANT INNOVATION CHALLENGE

Short Supply Chain

Figure: Short Supply Chains by ACTORS

Short Supply Chain

Figure: Short Supply Chains by ACTORS

Short Supply Chain

Figure: Short Supply Chains by STAKEHOLDERS

Short Supply Chain

Summary and Conclusions

Short Supply Chain - Benefits

Short Supply Chain -Development possibilities

Introduction

Short Supply Chain – Key Concepts

Due to the benefits of short supply chains, there has recently been an increase in the number of initiatives supporting the development of such initiatives in the agri-food sector.

These models have become an alternative to the globalized structure of the agri-food sector.

They enable "reconciliation" between the two extreme links in the supply chain and satisfying the needs of both the consumption and the production side.

At the same time they are affecting the well-established concept of sustainable development.

SFSC maight have also global aspects …

Summary and Conclusions

Target: To show the interaction betweenthe concept of short supply chain andtrade with the U.S. related to the need of TTIP

Methodology: literature review

Material:

Study “Enabling Trade Valuing Growth Opportunities” by World Economic Forum in collaboration with Bain & Company and the World Bank (2013)

Study “TTIP and intra-European trade: boon or bane?” by Ifo Institute – Leibniz Institute for Economic Research at the University of Munich; Ifo Working Paper No. 220 (2016)

Study “Global Value Chains and the Transatlantic Trade and Investment Partnership” by the National Board of Trade, Sweden (2013)

Research background

26

opening up the U.S. to EU firms

significant export growth

cutting trade barriers

reduction / eliminating of tariff and non-tariff barriers

enable a wider variety of goods and services

set high standards in global trade

protect high standard for food safety, consumer and environmental rules

Importance of short supply chains in context of the expected benefits on TTIP:

Trade with the U.S.Transatlantic Trade and Investment Partnership

(TTIP)

transparency in supply chains

unified standards in food safety and quality management

simplify certification

uniform conditions for data protection

conformity on transmission of data

strengthening online sales

simplified public procurement

increasing negotiating power for EU producers

Positively effects on efficiency and flexibility in short supply chains:

Trade with the U.S.Transatlantic Trade and Investment Partnership

(TTIP)

Changes in EU´s supply networks in agriculture and service

Trade with the U.S.Transatlantic Trade and Investment Partnership

(TTIP)

source: Ifo Working Paper No. 220 (2016)

simulated results

scenario:• full elimination of

all tariffs between EU & US

• reduction of non-tariff trade barriers

• U.S. become significantly more important as a supplier of processed value added

Conclusion

Trends increase of regulatory

controls

shift of technological landscape

emerge of e-commerce

formation of an imbalance between intra- European economic relations and agreements with third parties

Challenges increasing complexity

pressure of costs

increasing customer expectations

lack of skilled employees and qualified personnel

examine pragmatically regulations

build up networks between EU and US

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